Tether (USDT), the USD-pegged stablecoin issued by web3/fin tech company Tether, experienced a slight drop below its 1:1 peg against the US dollar on Thursday on decentralized exchange (DEX) Curve Finance. This drop led to an imbalance in the DEX’s main stablecoin liquidity pool, known as Curve 3pool.
On Thursday, USDT fell as low as 0.998 compared to its competitor USD-pegged stablecoin USDC and Maker protocol’s algorithmic stablecoin DAI. It was last trading around $0.9992 on the DEX against both.
As a result of USDT’s value drop, the weighting of USDT in the pool increased to as high as 59%, equivalent to over $135 million. In contrast, USDC accounted for 21% (just under $50 million) and DAI accounted for 20% (just under $46 million).
This imbalance in the liquidity pool reflects the increased sell pressure of USDT compared to its counterparts in the 3pool.
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According to CoinGecko, USDT was last traded around $0.999 on major exchanges and had a trading volume of over $20 billion in the past 24 hours. With a market cap of around $83.8 billion, USDT remains the largest USD-pegged stablecoin.
USDC and DAI have market caps of $26.06 billion and $4.47 billion, respectively.
The reason for the heightened sell pressure on USDT remains unclear. However, despite being the largest stablecoin by market cap, Tether, the issuer of USDT, faces regular criticism over its alleged lack of transparency regarding the reserves backing its stablecoin.
Tether has been making efforts to address these concerns in recent years. The value of its reserves is published daily on its website. As of August 3, 2023, Tether claims to have total assets of $87.2 billion and liabilities of $83.9 billion, leaving a $3.3 billion shareholder capital cushion.
In the second quarter of 2023, Tether revealed that it invested an additional $45 million into bitcoin, purchasing 1,529 tokens and increasing its holdings to over 54,000 BTC. Tether announced a plan in May to invest 15% of all profits into bitcoin.
As long as investors maintain confidence that Tether’s USDT stablecoin is backed at least 1:1 by USD or liquid-equivalent reserves, any depegging events for USDT should be short-lived.
The modest sell pressure on USDT observed on Thursday comes a few months after USDC briefly fell as low as $0.77 against the US dollar. This sell-off was triggered by the downfall of Silicon Valley Bank in March, as Circle, the issuer of USDC, used the bank to store some USD reserves. Traders feared that these reserves may have been lost, raising concerns about the full backing of USDC.
In conclusion, the recent drop below the 1:1 peg of USDT against the US dollar on Curve Finance’s DEX indicates an imbalance in the stablecoin liquidity pool. Despite facing criticism over transparency, Tether continues its efforts to address concerns and has allocated a portion of its profits to invest in bitcoin. As long as investors maintain confidence in the backing of USDT, any depegging events should be short-lived.
